DO YOU REMEMBER the “Shell Answer Man,” dear readers? He was part of a television advertising campaign by Shell Oil Co. back in the 1970s, in reaction to the oil shocks and gasoline shortages of that era. The Shell Answer Man was a nice-looking, pleasant-sounding fellow who would appear on the TV screen to ask and answer basic questions about driving in general and gasoline in particular.
With simple language, and in a disarming and folksy manner, the man from Shell would explain things that related to fuel usage, like how proper tire inflation was good for your gas mileage. Or he would discuss how “jackrabbit starts” wasted gasoline. Over a period of time, there were a variety of topical ads along those lines. If you were somewhat savvy about driving an automobile, there was nothing particularly new or revealing in the message. But if you were what we might characterize, with all due respect, as the “average consumer,” blissfully dwelling in energy La-La Land, then the Shell Answer Man offered some good advice. Well, it was good advice if you followed it.
John D. Hofmeister
And so today we meet John D. Hofmeister. He is a nice-looking, pleasant-sounding fellow who happens to be the president of Shell Oil Co. And he is in the midst of a 50-city lecture tour, on behalf of Shell, giving speeches with a title along the lines of “How the U.S. Can Ensure Energy Supply for the Future?” On Feb. 8, 2007, he brought the show to Pittsburgh.
First of all, Thank you, Shell Oil Co., and thank you, Mr. Hofmeister. No matter what else I say in the following two-part commentary (and frequent readers know that I will have a few things to say), I certainly appreciate that a large company like Shell would make the effort to hold what amounts to a “national energy discussion.” And it says something important that a big, publicly traded company like Shell would send no less than its president out on the road to give the pitch. I suspect that such a senior corporate officer might have a few other things to do, like run Shell Oil. But then again, educating the public about the nation’s energy supply and answering peoples’ questions on the subject might just be more important over the long term than squinting at a few more spreadsheets full of obscure data or buttering up the stock analysts.
A Well-Traveled Road
And what a road Mr. Hofmeister has traveled in the past year or so from Miami to Minneapolis, New Orleans to Irvine, Seattle to Washington, the National Press Club to Harvard Business School. The guy gets around. He calls it a “speaking tour,” of course, because he is giving speeches. But he also calls it a “listening tour,” because he takes questions and offers answers, however well rehearsed. (It’s OK, really. Shell has to be careful not to run afoul of the Securities and Exchange Commission or its many volumes of regulations. So everything has to get scrubbed by the lawyers.)
The typical gig involves a visit to some burgh where Mr. Hofmeister has a lunchtime speech scheduled before a local assembly of worthies, such as the World Affairs Council of this hamlet or that village or town. Also on the schedule, time permitting, is a morning visit to an area high school or college to meet with the young people and hold give-and-take sessions with those inquiring minds. And often as not, the indefatigable Mr. Hofmeister holds a “town meeting” later in the day, at which forum just about anybody can (and ofttimes does) show up to make caustic attacks on the oil industry, if not to bellyache about the price of gas.
In Pittsburgh, for example, one precocious high school student asked one of the most painful of all questions that any oil company executive can hear: “How much do you get paid, Mr. Hofmeister?” Ooooooh! That’s what I compare to a hot welding spark dropping down your shirt. But Mr. Hofmeister gave the nosey kid a good answer: “I get paid more than a rookie player for the Pittsburgh Steelers, but less than [Steelers quarterback] Ben Roethlisberger.” Not bad, Mr. Shell Answer Man, not bad at all.
Just by way of payroll perspective, a rookie player for the Pittsburgh Steelers makes more money than a federal judge, albeit without the lifetime tenure. And although the Steelers’ player No. 7 did steer the team to a Super Bowl championship back in 2006, Ben Roethlisberger has a disturbing habit of riding a motorcycle without wearing a helmet. How smart is that? Yet the Steelers quarterback gets paid more than the guy who runs Shell Oil Co.? Go figure.
And the man from Shell might have added that he gets paid to manage a company that produces real energy and industrial products that people buy and use, and that he makes a heck of a lot less than most of the senior guys at places like Goldman Sachs or the myriad rich guys who run those Greenwich- or London-based hedge funds. Really, dear readers, how much gasoline or engine lubricant have you ever bought from Goldman Sachs, let alone from those Greenwich and London hedge funds? But I digress.
The Edge of Secure Supply
The public speaking coaches will tell you that it is often good to begin your speech with a story to gain the attention of the audience, and Mr. Hofmeister began his lunchtime talk with one heck of a tale. In the aftermath of hurricanes Katrina and Rita in 2005, almost all of the U.S. Gulf Coast refineries were down due to flooding and other storm damage. Shell had 300,000 barrels of refined product in storage at its Baytown, Texas, refinery, which was essentially the only supply available to the entire Southeast region, but there was no electricity with which to run the pumps. Whoops!
Shell employees and contractors were working feverishly to rig up electric generators at the Texas facility, but it was a race against time, over a 48-hour period, until the Plantation and Colonial pipelines -- the major trunk carriers for refined product between Texas and the Southeastern U.S. -- went dry. If word escaped of the predicament, Shell executives believed that many members of the consuming public would have panicked. Then “panic-buying” would have immediately kicked in and rapidly drained whatever fuel was left in the supply system. The entire U.S. Southeast, home to about 60 million souls, could have been caught in a situation in which there would be no fuel available anywhere. It fell to Shell’s Mr. Hofmeister to call the U.S. Secretary of Energy and deliver the bad news.
But like the cavalry arriving near the end of a John Ford Western, Shell’s hardworking people hooked up the Texas facility with electric power, with all of about 12 hours to spare. Shell started pumping gas into the pipeline system. There were, you may recall, spot shortages of fuel in the U.S. Southeast, but no regional lack of product. Still, as Mr. Hofmeister put it, it was a close call and the U.S. was and remains “on the edge of secure supply.”
Shell’s View of the World
In his comments in Pittsburgh, and in his talks to other groups across the U.S., Mr. Hofmeister has noted that he is “president of a company that creates a product that consumers don’t want to see, touch, taste or smell, even though they buy it by the gallon day after day.” At the same time, he notes, the mission of Shell is to “renew the American industrial energy base in order to grow energy supplies in this country -- which are ample.” Mr. Hofmeister continues: “We are deeply, deeply invested in the hydrocarbon economy and there is no short-term exit from the hydrocarbon economy, unless we want to suspend economic growth and development.”
Mr. Hofmeister, in the course of his tour, has on numerous occasions amplified these comments. His talks identify to listeners a key dilemma of our time, that “we are the beneficiaries of an industrial age, having given way to a post-industrial age, having given way to an information age, in which the world is ever more seeing the role of information and the manipulation of information as part of the business model upon which we will build wealth creation.” But the Shell man has noted, “Sustained growth of the post-industrial information era can only occur predicated upon continued development, and in some cases redevelopment, of the industrial infrastructure which many people think we have moved beyond.”
Redeveloping Industrial Infrastructure
In the course of his talk in Pittsburgh, as in his other speeches in many other cities, Mr. Hofmeister addressed the litany of present and future potential energy resources. He spoke at length, as you might expect, about oil and natural gas.
Considering that the focus of the man from Shell was on explaining the need and urgency of developing and redeveloping energy and energy-related industrial infrastructure, it was odd, certainly to this correspondent, that he did not address the concept of depletion. Most people tend not ever to have heard of depletion, let alone to understand it. In fact, I have met many people who think that oil wells just gush away, forever and ever, world without end, amen. They say things like, “If only those damn oil companies would uncap those wells they have shut in down in Texas, we’d have plenty of oil.” Oh please, dear readers, can you feel my pain? But then you explain to these misguided souls how depletion works. Then, unless they are total idiots or utter ideologues (and believe me, dear readers, there are some total idiots and utter ideologues out there), they understand why it is necessary to go out and drill new wells to replace the ones that have declined. So memo from King to Hofmeister: Discuss depletion, even if there are idiots and ideologues who just won’t get it.
Mr. Hofmeister’s emphasis was on the political fact that about 85% of the U.S. Outer Continental Shelf (OCS) is off-limits to oil and gas exploration, as are large areas of federal- and state-owned lands in the U.S. These areas have significant potential to become productive areas for oil and gas, but the environmental opposition is such that the political will is lacking to lease any blocks and spud any wells. And even if, let’s say tomorrow morning, the political will magically appeared for OCS development, it would take much time and investment for any productive potential to come to fruition. Considering that it takes between 10-15 years to begin to develop an offshore province, the decision to open or not to open up the U.S. OCS will impact the energy destiny of the country in 2020 and afterward. In my view, people in the future will look back and think rather unkind thoughts about us for our current inaction, but that is another subject for another time.
To his credit, Mr. Hofmeister acknowledged that drilling the OCS will not “solve” the U.S. energy dilemma. As an oilman, of course, he painted a favorable scenario for future hydrocarbon production from the OCS. But the guy clearly is smart enough to understand (and honest enough to say) that drilling up the OCS is not the answer to the nation’s energy problems going forward. The take-away point was the geologically correct observation that future oil and gas production from the OCS has to be a part of any overall U.S. energy strategy. It will be, of course. It is just a question of time, and how desperate the U.S. becomes for oil and gas as in the future as imports inevitably decline from other parts of the world. It’s that depletion thing.
Mr. Hofmeister spoke about Shell’s efforts in developing other forms of hydrocarbon fuels, as well. These include the “Alberta oil sands” (even though we all know that the correct description is “tar sands”). He discussed the future of liquefied natural gas (LNG) and the importance for the U.S. of having the facilities in place to import LNG from overseas. He discussed the use of domestic coal, noting that “The word ‘coal’ is usually associated with the word ‘dirty.’” The point was not lost on an audience in Pittsburgh, most of whom above a certain age could tell you a few things about dirty old coal. But Shell is focusing quite a bit of investment on a coal-related concept called integrated gasification coal conversion (IGCC), which allows for much cleaner combustion or conversion of the black rock, with the opportunity to capture and sequester the carbon dioxide byproduct. Shell has 15 IGCC projects ongoing in China. And among the other coal-related processes that the company president mentioned were coal-to-liquid (CTL), with which Shell is also well along in China. I have written at length about these energy resources, including Shell’s methanol projects in China.
Other areas of interest and investment by Shell include Colorado oil shale, in which Shell has pursued a 20-year research project. But any major investment in oil shale is, according to Mr. Hofmeister, “still many years away” for Shell. Mr. Hofmeister did not say it in so many words, but the tone of his voice seemed to emphasize the quantity of “many.” So don’t hold your breath. Oil shale has been the “fuel of the future” for a long time, and still is. And Shell is also investing in technology to upgrade heavy oil, of which there are voluminous amounts in the crust of the Earth. Again, this will be a technological stretch that plays out over many years.
According to Mr. Hofmeister, Shell is a major player in what he calls “second-generation biofuels,” meaning ethanol-derived “from nonfood-based cellulose material.” This includes plant stalks, wood chips, and even municipal waste. Why no enthusiasm for corn-based ethanol? Mr. Hofmeister has, on other occasions, explained it thus:
I got 48 letters from attorneys general (in 2006) accusing us of price gouging during the course of the last 12 months. It’s not fun to get accused by attorneys general in 48 states of price gouging when in fact we’re working very hard on bringing supplies. So the biofuel, we believe, stretches the gas supply, but the cellulosic avoids the cost of food going up. What I really don’t want to see is 48 letters from attorneys general accusing us of raising the price of food in addition to the price of gasoline because of the extensive use of corn and sugar.
Shell is also investing in producing energy from solar films and fuel cells, and the company even produces in excess of 300 megawatts per day of electricity from windmill farms in seven states. So Shell has quite an energy aperture.
But simply focusing on future energy supplies is not enough, states Mr. Hofmeister on behalf of Shell. Shell believes in promoting a “culture of conservation”:
We need a culture of conservation. Conservation does not come from turning the thermostat up a bit in the summer and down a bit in the winter. Conservation comes from the minds and the hearts of our engineers and our designers who can rationalize energy efficiency and who can design vehicles, homes, buildings, and appliances in ways in which energy efficiency is increased on an ever-constant-improvement basis. A culture of conservation drives energy efficiency forward for generations to come. We believe that a culture of conservation has to start with education, as does this whole backdrop of energy efficiency and energy education. Shell supports the notion of working with public policy leaders on a rational framework across the whole spectrum of energy development, but, in addition to that, supports the development of a school-based curriculum to educate our young people for generations to come about how important energy is to our life, to our economy, and to our standard of living,
So in summary, according to its president, Shell Oil Co. is looking at and investing in production of traditional hydrocarbon sources of energy as well as developing novel means of producing energy supplies from alternate forms of carbon. And Shell is working on innovative energy alternatives, and supports conservation efforts. The company’s top executive is out on the road putting a human face on its corporate vision and interests, and giving good speeches about important topics.
So far, so good. And in Part II of this article, we will take things a few steps further and pose some questions to the Shell Answer Man.
Until we meet again….
Byron W. King
THE PRESIDENT OF Shell Oil Co., John D. Hofmeister, is about midway through a 50-city speaking-and-listening tour, talking about the national energy situation on behalf of Shell. Last week, he brought the tour to Pittsburgh. In Part I of this report, I provided an overview of the energy message that Mr. Hofmeister is delivering on behalf of Shell, embodied in the title of the speech that he has given, in one form or another, in many cities, “How the U.S. Can Ensure Energy Supply for the Future.”
Shell’s Mr. Hofmeister is talking about oil and natural gas, of course, which is what you would expect from the man who runs Shell. But he is also talking about other energy resources such as coal, tar sands, oil shale, heavy oils, biomass, fuel cells, solar power, wind power, and even plain-old energy conservation. It is quite a comprehensive overview, and the theme of the presentation reflects the energy investments and technological pathways that Shell is pursuing. When asked why he is not discussing nuclear power, Mr. Hofmeister states that Shell does not have corporate expertise in that field and thus he is willing to leave that radioactive energy source for others to review. Fair enough.
It Sounds Like the Peak Oil Issue
What is that old expression about, “If it walks like a duck and looks like a duck and quacks like a duck”? Here we have the president of one of the world’s largest publicly traded oil companies, in business for well over a century, traveling back and forth across the land to hold a national energy discussion. The man from Shell states in no uncertain terms that conventional crude oil is getting harder to find and extract. He begins his talks by offering a definition of “energy security” from the perspective of Shell Oil. That is, energy security means ensuring an available, affordable supply of energy for the present, the foreseeable future, and generations to come. The implication is that Shell is on the cutting edge of a strategic vision for delivering energy supply to the nation’s and world’s consumers within a market system, and working to be part of any transition or transformation from where we are now to where we will be many decades from now.
In his speeches across the U.S., Mr. Hofmeister has clearly described how the search for oil and natural gas reserves is moving into distant, dangerous expensive places to operate. Of course, he promotes opening up remote and expensive places for drilling, such as the U.S. Outer Continental Shelf (OCS). This OCS issue is, if you do not know, part of the DNA of every true oilman, certainly including this correspondent. And Mr. Hofmeister is discussing the massive, long-term, and very costly investments that his company is making in alternative energy sources, from tar sands of Canada to oil shale in Colorado. He describes other exotic and expensive energy investments that Shell is making in coal gasification and coal-to-liquid (CTL) technology, as well as in fuel cells, solar cells, and wind power. It all sounds, to the informed listener, like Mr. Hofmeister is discussing the Peak Oil issue.
The Peak Oil Paradigm
All of what Mr. Hofmeister is saying certainly fits in to the standard Peak Oil paradigm, which is that mankind has generally located, if not discovered, most of the conventional crude oil that there is to find in the crust of the Earth, and has produced and consumed something near half of it. That is, out of a conventional, worldwide resource base of conventional oil that is estimated by some knowledgeable commentators at about 2.2 trillion barrels, about 90% has been discovered and about 1 trillion barrels have been extracted and consumed over the past 150 years or so. At the present time the global oil industry is pumping the world’s known oil reserves at a rate of about 1,000 barrels per second, or 85 million barrels per day (mbd), or about 31 billion barrels per year. And the global economy is, as frequent readers of this column know, consuming or otherwise burning up almost every drop of that oil. And not to get too preachy, but watch what happens if just a couple of hundred thousand barrels per day of production (near a rounding error from a production base of 85 mbd) go off line, such as occurred last August when BP closed the Alaska pipeline.
So do the math, dear readers. Follow the facts. Watch the trends. Mankind is at the top (or “peak”) of the conventional oil production curve. The world’s major oil provinces and largest oil fields are barely holding steady in production (Saudi’s Ghawar Field, for example), or are in irreversible decline (U.S. Lower 48 and Alaska, North Sea, Mexico’s Cantarell, Kuwait’s Burgan, China’s Daqing, Russia’s Samotlor and Romashkino, and many others). The world is pumping and burning oil that was discovered decades ago. And despite massive and costly efforts at exploration, overall, the global oil industry is pumping conventional oil reserves out of the ground at a far faster rate than it is discovering new reserves. So in the past few years, “new” oil production has barely kept up with depletion and decline in volumes produced from older areas.
“Call It a Banana”
Yes, do the math. These facts are the heart and soul of the Peak Oil discussion, dear readers. There is a lot of conventional oil in the crust of the Earth, and obviously, there is enough to support current daily global oil production of around 85 mbd, at least for a while. But only for a while. (How long? Good question.) What happens when conventional oil volumes begin to decline in an appreciable manner? This is exactly why big oil companies like Shell, and most government-owned oil companies, and many other large and small firms from around the world, are investing feverishly to develop alternative sources of hydrocarbon production, other energy sources, and advanced energy conservation concepts.
Thus, the future of conventional oil production bodes ill. The most likely forecast is that the rate of oil extraction will hold more or less steady and bounce along, at a maximum production plateau of about 85 mbd for some relatively short-term period of years, and then eventually follow a downward trending and irreversible curve of decline. Call it “Hubbert’s Peak” if you wish, after the title of the fine book by Princeton geology professor Kenneth Deffeyes. But Hubbert’s Peak is only a label. Call it something else, if you wish. You might even want to quote the late, great Groucho Marx and “Call it a “banana.”
Plenty of Uncertainty
So yes, the Peak Oil scenario rests on the assumption that the world’s largest oil provinces, in both area and volume, have been located from Texas and Mexico to Saudi Arabia and Iran, from the North Sea to West Africa, from Western Siberia to Northern China, from many spots here to many other spots there. But no, for all the purists out there, this does not mean that we know where every deposit of conventional oil is located, to a precise grid description on the face of the planet. There is plenty of uncertainty about the future of exploration and production. There are, to be sure, many dry holes yet to be drilled.
Rest assured that the world’s oil industry will be exploring for oil and drilling wells far into the future, to recover the valuable hydrocarbon product from the rock beds of the Earth. And it means that the future of conventional oil exploration will be one in which those geologists and drillers look for smaller and smaller oil fields, in more and more remote locales. There will, of course, in that oil-searching future be plenty of good jobs and good wages for geologists, geophysicists, and engineers of every ilk and stripe, and drillers and logisticians and the myriad of oil service personnel who make it all happen. And again, to his credit, Shell’s Answer Man Mr. Hofmeister has given more than a few speeches addressing the industry-wide chronic shortage of personnel with critical skills that is currently hamstringing many exploration and production efforts.
The Peak Oil Question
As I mentioned in Part I of this article, Mr. Hofmeister takes questions as well as gives speeches. And so I asked him straight up about Peak Oil: “Mr. Hofmeister, does Shell Oil have a corporate policy or position on the concept of Peak Oil, which you know was pioneered by former Shell geologist M. King Hubbert?”
And here is exactly what Mr. Hofmeister said: “Among informed Shell executives, there is a rejection of the Peak Oil theory.” Peak Oil is, he stated, “based on flawed assumptions.”
Mr. Hofmeister listed three reasons why Shell executives reject Peak Oil theory:
Amplifying this last point, Mr. Hofmeister mentioned an old saying that has been, I believe, first attributed to former Saudi Oil Minister Sheikh Zaki Yamani, that “The Stone Age did not end for lack of stones, and the Oil Age will not end for lack of oil.”
And finally, Mr. Hofmeister made another comment along these lines: “We will reach Peak Oil, but not for lack of oil.”
Not for Lack of Oil?
Earlier in this article, I mentioned the old expression that “If it walks like a duck and looks like a duck and quacks like a duck…” Well, there are more ducks here than on Old McDonald’s Farm. I honestly admire and commend Shell Oil Co. and Shell’s Mr. Hofmeister for going around to discuss the energy predicament of the U.S. and the world. Mr. Hofmeister is saying many of the right things, in my view, and he is in a position to know what he is talking about. But what is going on? What is with the Peak Oil denial by Shell?
According to the president of Shell, Peak Oil is “based on flawed assumptions”? I just do not get that. Actually, the mathematical support of the Peak Oil argument is based largely upon industry-supplied data sets. That is, Peak Oil is based on historical and current production data for conventional oil, and the only place to get that kind of data is from industrial summaries such as the BP Statistical Review or Oil & Gas Journal or by summarizing collections of government-mandated data. So not to overstate the issue, but it is the camp that diminishes or denies Peak Oil that is using the flawed assumptions.
The critics focus on the point that the Peak Oil concept focuses on conventional oil, and does not take into account other hydrocarbon alternatives. Well, yes, after a fashion. Peak Oil is, and always has been, about “conventional oil” recovery. The discovery and recovery of conventional oil has been occurring for about 150 years, since 1859, when Col. Edwin Drake pounded down his famous well at Titusville. When former Shell geologist M. King Hubbert first articulated the Peak Oil concept in the 1950s, conventional oil was the whole ballgame. And the world is now at the point at which conventional oil extraction is a more or less flat, at a production rate of something over 80 million barrels per day (mbd), with the balance in natural gas liquids and other energy fluids.
And this “conventional” oil distinction of the Peak Oil argument is not some sort of “flaw” in the assumption; it is critical to understanding the point. With the exception of just a few million barrels per day of heavy oil, very sour crude, oil from tar, and a few other exotic forms of hydrocarbon, the entire world’s industrial liquid fuel infrastructure is wired and plumbed for conventional crude oil. This is the 150-year legacy of past investment at work. For example, the plastic and rubber gaskets in the engines of almost all of the world’s 500 million or so motorized vehicles are designed for use with oil-based gasoline, and rapidly corrode if ethanol is used for fuel.
Look at it from the other perspective. The world simply does not have the industrial infrastructure to produce 85 mbd of “alternative” forms of hydrocarbon fuel and there is no program in place to construct it, certainly not over the next few decades. After 20-plus more years of investment in the tar sands of Alberta, for example, the government of Canada is forecasting at most about 3 mbd of synthetic crude oil production by 2025. And this will require immense amounts of fresh water and natural gas, the supplies of which are entirely problematic.
And for all intents and purposes, there is simply no oil shale industry (let alone a world-scale oil shale industry), despite over a century of periodic hype to include the research performed by Shell in Colorado. Coal-to-liquid (CTL) efforts are embryonic, and it is a fair statement to say that no one really knows what a large-scale CTL industry will look like, what the technology will entail, what the environmental impact will be, and what the energy return on energy investment (EROEI) will be.
The critics also often argue that the Peak Oil thesis does not take into account new forms of technology that expands the reach for oil to deeper and more remote locales, or new equipment and processes that improve oil recovery from rock formations.
Actually, the improvement in technology is one of the things that demonstrate the point of Peak Oil. The “easy” oil has been found, and Shell states as much in its corporate advertising, along with Chevron, BP, and most other oil companies that pay good money to advertise their efforts. A deepwater oil well in the Gulf of Mexico, for example, costs in the neighborhood of $125 million, as was the case with Chevron’s 28,000-foot Jack-2 well that drew so much attention in September 2006. Would Chevron, or any other oil company, drill 28,000-foot wells that cost $125 million if there were cheaper alternatives? Deep, remote, expensive exploration and production wells make the case for Peak Oil, not diminish it.
As for enhanced oil recovery (EOR) methods, again these technological advancements make the case for Peak Oil. On the one hand, EOR is a market response to the rising price of conventional oil, so EOR merely illustrates that oil is becoming scarce and worth more investment to recover from the ground.
At the same time, EOR merely allows the oil producer to recover a higher percentage of the oil in place. EOR does not “make” any new oil in the rock formations. What is down there is down there, and EOR is just a way of leveraging your investment in a hole in the ground to get more oil out, and often as not to get it out more quickly. Whether your methodology is to drill horizontal wells or to perform multilateral completions or to inject water or gas to keep up the reservoir pressures or pump surfactants or other chemicals into the oil-bearing formation, what you are doing is mobilizing the oil and accelerating oil extraction from the future into the present.
The Peak Oil problem with EOR comes when the distant future shows up and becomes the present. Then, your extraction drops precipitously and your irreversible decline curve kicks in with a vengeance. Oil-producing regions such as Mexico’s Cantarell, the North Sea, or even parts of Saudi Ghawar illustrate the point. These great oil-producing regions have been the subject of EOR since the 1980s, and now their annual production decline rates are in the range of 12% and more. And compounding the problem, the decline in production leaves a major gap in the supply curve going forward, particularly since no one is “discovering” any other new oil provinces like Ghawar, Cantarell, or the North Sea.
So EOR is a technological means of pulling more oil out of the same holes, but it is not a contradiction to the argument embodied by the term “Peak Oil.”
As for the argument that people will change demand and consumption habits long before we “run out of oil,” this is actually part and parcel of the basic Peak Oil thesis as well. Peak Oil is real, as are markets and market behaviors. Prices rise, and people react.
And of course, people will change their habits as conventional oil becomes more and more scarce, and expensive, going forward. They will have to, just as the world changed its consumption habits in 1978 and 1979 when the Iranian Revolution took almost the entire petroleum output of that nation offline within a matter of months. When the oil was not there, it was not there. Prices rose. People changed behavior. Economies crashed. And so it will be in the future. We can prepare or not, with a sense of urgency or not.
Moving the Goal Posts
So to my way of seeing things, it is the critics of the Peak Oil concept who keep attempting to redefine the terms. In one intellectual form or another, they keep trying to move the goal posts whenever some new evidence comes along that makes a new point within the discussion.
But this two-part article concerns Shell Oil Co., its president, John Hofmeister, and his traveling speaking tour. Shell and its president are attempting to hold a national energy discussion and to get people at the grass roots thinking about whence will come the nation’s energy supply in the future and the need for a true long-term national energy strategy. The Shell Answer Man is putting quite a bit of valid, accurate information about energy out on the table for all to see, from the depleting oil situation to the need for significant energy conservation efforts. Bravo.
We can disagree about this feature or that of what Mr. Hofmeister is saying, and even differ about the name on the label. Is it “Peak Oil” or no? I happen to believe that it clarifies the thinking process to call things by their correct name. But then again, it all may be of little consequence in the long term. We shall see. As our Arab friends say, “The dogs bark. The caravan moves on.”
Until we meet again…
Byron W. King